Prime Minister Anthony Albanese does not understand economics or housing and it’s going to hurt first home buyers most of all.

He’s proudly proclaimed on his socials. Want to buy your first home? From today, you’ll only need a deposit of 5%. Now, I’ve covered in detail in past videos the fact that the housing affordability crisis is a government-made crisis made up of a combination of planning laws, the cost of construction due to minimum standards, red and green tape, all of which restricts supply and drives up costs, and the subsidizing of buyers ever since John Howard introduced the $7,000 first homeowners grant way back in the olden days, driving up demand.

So, the government has been suppressing supply and subsidizing demand. And all of a sudden, hey, where did this housing price bubble come from? Well, if you look at this graph, you’ll see that it really kicked off after the first home owners grant was introduced. But you already knew that, especially if you are a regular viewer of this channel. But what I want to talk bring to your attention today is just how ignorant Anthony Albanese is because his tweets in celebration of this 5% deposit scheme are actually lies. He’s literally saying that this scheme will lower repayments for first home buyers when the opposite is most definitely true for a number of key reasons. And just as today’s housing affordability crisis is being caused by past government help, so too will this new round of help be responsible for making the prices even worse. Only this time, it might not just make housing even less affordable. It might very well be the financial ruin of many of the 5% deposit scheme victims, uh, sorry, participants.

If you’re a first home buyer or you know someone who is, I’d suggest you watch the rest of this video before you get too excited about this 5% deposit scheme. And if you already know the 5% deposit scheme is a terrible idea, brace yourself because you might not be aware that single parents are eligible for a mere 2% deposit scheme. And yes, the dangers for those people are even higher. My name’s Topher Field. This is the Topher Project, and I help busy people like you to cut through the crap and make sense of the nonsense that spews from the lips of our political and media class. I am 100% viewer supported, and I need your help to keep the Topher project going by buying me a coffee via the button at topherfield.net.

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I’ve said it before and I’ll say it again. Politicians don’t benefit from fixing problems.

They benefit from promising to fix problems and that’s why they keep doing things that don’t actually fix the problem because if they actually fixed it, well then they wouldn’t be able to make any more promises. The housing affordability crisis is the gift that keeps on giving from their perspective because they can keep promising to help and then keep making it worse and then keep promising to help some more.

Now, I’m not going to go over it all again, but I’ve covered in the past the fact that our housing affordability crisis is government-made for the reasons I mentioned earlier. Planning and regulations, etc. that hurts supply and subsidies and first home buyer assistance that inflates demand. And on top of that, there’s the issue of currency inflation, which has destroyed the value of our money so badly that actually you can buy a house for half of what you would have paid in the 1970s if you choose to pay in gold. And yes, absolutely, of course, I have a video about that. It’s Topher Project episode 125 if you’re interested.

But all of that is just the background, the prologue to this moment here where Anthony Albanese is going full and setting up many aspirational Australians for a big lesson in why you should never get into bed with the government. The promise of the scheme is that renters will become buyers sooner and that they’ll save money in the long run. But neither of those things is actually going to be true for most people. Yes, it will be true for a small number of renters, for those who are already at the margin or in other words, those who are already close to being able to buy. But for the rest of us, this scheme will be the reason why they never buy or if they do, it could be quite possibly why they end up in foreclosure and worse off than they are today.

Why do I say that? Well, like I said at the start, Anthony Albanese doesn’t understand economics. This is the first and most obvious problem. Albo is propping up demand without fixing the terrible restrictions on supply. And we know what the result of that is going to be. Prices are going to go up even higher. Even Albanese has finally had to admit under pressure after remarks from Michele Bullock, the governor of the Reserve Bank of Australia, that his scheme is indeed causing prices to go up even more. So whilst this 5% deposit scheme will for the moment help some people who are unable to save a full-size deposit, it is going to further hurt everybody else who are struggling to meet serviceability requirements to get the loan size that they will need.

Albo claims that instead of paying off someone else’s mortgage, you’ll be paying off your own, but that’s only true for people who can qualify for the loan in the first place.

To qualify for an $800,000 loan, which is only a modest house in Melbourne or Sydney thanks to inflation and the artificial propping up of demand and restriction of supply that we’ve already talked about. To afford that loan, you would need to be able to afford $50,000 a year in principal and interest repayments. And most renters simply cannot afford that, especially when you remember that both the principal and the interest on your family home has to be paid with after-tax money. They cannot qualify for the loan and no amount of assistance with the deposit will change the fact that they cannot qualify for the loan to buy a house because houses are so ridiculously expensive.

They wouldn’t be able to afford it even if there was no deposit. They still would not be in a position to buy because houses today are so damned overpriced compared to our incomes that a lot of people simply cannot qualify for the finance. This is what makes all of these buyers assistance schemes so perverse, so counterproductive, because the more the government helps the buyers, the further out of reach our house prices become.

Here’s an uncomfortable truth for you. Most landlords are subsidizing the cost of housing for their renters, making it possible for their tenants to live in houses that they would not otherwise be able to afford. And we know this is true because negative gearing is a thing. Most landlords are losing money, at least from a cash flow point of view, on the properties that they own, which means that the holding costs are higher than the income being generated. Or to say it another way, it means that the renters are not paying to the landlord the full cost, the full value of what that home actually costs year by year.

Now, this is a truth that really pisses a lot of people off, but it is true. Now, there is more nuance to it, of course. Things like depreciation schedules on new builds make it possible for a landlord to lose money on paper, but not in actual real-world cash flow. And yes, it’s also true that demand from investors is one of the contributing factors to how high housing prices have become. I’m not ignoring that. But the fact is that all of the government’s efforts to make housing affordable have been the primary driver of how unaffordable our housing is. To the point that most renters can only dream of ever buying their own home or even the home that they already live in. Because whilst they can afford to rent it, they can’t afford to buy it. Not only because they can’t save the deposit thanks to the cost of living, but also because they haven’t got a snowflakes chance in hell of ever qualifying for that overinflated loan.

But that’s not where it gets really bad. Where it gets really bad is for the people who do buy in. The people who are at the margin and manage to get into the property market thanks to this 5% deposit scheme or the 2% scheme for single parents. By definition, these are people who are scraping, stretching to get to the point where they can buy a house. And guess what? If you think it’s hard to make interest payments now at the current interest rates, wait till you see how hard it gets as interest rates go up again, which they will do sooner or later.

Everything that the government is doing, including this 5% deposit scheme, is driving inflation.

Yes, the official CPI figures look good, but the official CPI figure has been a work of fiction since the early 1980s when they started regularly adjusting what was included in the CPI basket of goods. And inevitably, they have politicized the whole thing and made the CPI figure a tool of manipulation and misinformation. Real inflation is running way higher than official CPI and the Reserve Bank can only ignore that for so long.

The Reserve Bank under Michele Bullock I mentioned earlier chose to leave interest rates where they are earlier this week and that’s not particularly surprising this time, but there is a wide market expectation that rates will be cut again later this year unless something changes. Michele Bullock’s comments when she announced the decision on Tuesday to keep rates where they are seemed to be a warning against exactly what Prime Minister Anthony Albanese is doing with the housing market. As reported here by the ABC in her post-meeting press conference, RBA Governor Michele Bullock said the bank was wary of any uptick in inflation. Market services and housing inflation were a little higher than we were expecting, she said. So, we’re just being a little bit cautious about that. It doesn’t, I don’t think, suggest that inflation is running away, but we just need to be a little bit cautious.

The Albanese government is spending record amounts of money which increases inflation and they are deliberately increasing housing inflation with this 5% scheme. And what happens when inflation goes up? Well, sooner or later interest rates go up. Probably not this year, although it can’t be ruled out. There might even be another rate cut later this year. That’s certainly what’s been expected. But give it 9 to 12 more months of Albanese and his big spending socialism and inflation is very likely to be a problem and the Reserve Bank is very likely to be responding by increasing the Reserve Bank cash rate leading to increases in the interest rates on home loans.

What happens then to these overstretched 5% deposit home buyers? Anthony Albanese doesn’t understand this reality. Have a look down the bottom of this screenshot that I took from the Commonwealth Bank loan calculator for an $800,000 loan. Notice the total interest charged is more than the value of the loan that was borrowed. Yeah. Anthony Albanese helping people to buy with a smaller deposit but therefore a bigger loan especially because house prices are now jumping up again. So the loan size is getting even bigger. He is locking people into financial stress as he invites people who cannot really afford it to stretch themselves to their limits.

Albo says he’s taking years off the time it takes to save for your first home deposit.

But what he doesn’t say is he’s adding years and hundreds of thousands of dollars to how much you will need to pay the bank, assuming inflation doesn’t cause unaffordable interest rates and the bank end up ends up taking that house off you in the end anyway.

The only way to make housing affordable is to make affordable housing. This means getting the government out of the way, slashing the restrictions on supply and no longer propping up demand and allowing the private sector developers and builders to meet the needs and desires of the market with minimal interference from government or regulators. This new 5% deposit scheme, or 2% in the case of single parents, is just a continuation of the last 25 years of repeated government failure that created the housing affordability crisis in the first place. And this new hair brain scheme from Simple Jack, sorry, from Prime Minister Anthony Albanese is more of the same expensive failure.

Politicians don’t benefit from fixing problems. They benefit from promising to fix problems, which is why they never actually fix problems because then they would have nothing to promise. Now, I’m not a financial adviser and this is not financial advice, but let me suggest to you that if you or anyone you know is considering using this 5% or 2% deposit scheme, have a careful look at your circumstances. And I would suggest that if you choose to go ahead, then make a point of paying off extra from your mortgage as fast as you can and building a buffer against future inflation and interest rate shocks.

And if you’re listening to that and saying, “But Topher, I can’t afford to pay off extra and build up a buffer.” Then I would reply by suggesting that maybe you can’t afford to buy that house in the first place if it’s going to stretch you so thin. Because even though the government is helping you to buy that house, they’re not helping you to afford that house, that’s between you and the bank. And the one thing worse than not being able to buy something is buying something that you soon discover you cannot afford. The only way to make housing affordable is to make affordable housing. This government scheme and all the schemes like it, they’re just making housing affordability worse.

My name’s Topher Field. This is the Topher Project and I help busy people like you to keep up with the world as it changes around us and to make sense of the nonsense that surrounds us. I am 100% viewer supported. So, please help me to keep the Topher project going by buying me a coffee via the button at topherfield.net. And if you like my no-nonsense videos, then you will love my books, DVDs, and merch, which you will find at goodpeoplebreakbadlaws.com.

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